RPD - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Rapid7 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your host for today's call, Sunil Shah, VP of Investor Relations. begin. may you Sir,

Sunil Shah

for and to everyone. XXXX discuss in financial operating operator, fiscal and joining XXXX. year financial appreciate us results, outlook our to today RapidX's addition second good you quarter We full afternoon, you and the Thank first quarter

me call Corey today With Thomas, Jeff and CEO; on CFO. our the Kalowski, are, our

updated financial website We is now it file. the wire at along have investors.rapidX.com, and distributed and our earnings press Company with the on metrics over our presentation release posted

This available via call, call webcast and an audio being broadcast is live until XXXX. following replay at XX, the will May be investors.rapidX.com

underlying acquisition the Harbor the call, we Securities Litigation results year of Act this laws. our our federal guidance, goals, the financial renewals of results related of economy operations business, to Reform recovery securities and financial the the for in for operations statements positioning, anticipated include Company's on XXXX XXXX business strategy. financial Safe that future second These our statements During guidance pursuant DivvyCloud related the provisions make COVID-XX forward-looking the economic and and the such product our made to and under may timing full the impact of assumptions condition, of on global on our guidance, XXXX, Private assumptions are are our and of statements the quarter impact including to and

quarter those these Annual our based to that in in be on Form available recent from The results number on Report are materially the risks. filed light the we statements statements current Form may we and March currently the call and in report with uncertainties reports subsequent most on risks to SEC should expectations and XX, considered a forward-looking These outcomes information our due on contained this current Form such XX-Q including information with SEC, for the provided April of the and ended Actual our XXXX. XX contained and expectations beliefs including the filed on us. on of XX-K, differ X-K

differ statements be Actual of timing forward-looking on future call, results results and from and should events such predicted the timing not the as update the required or extent applicable reported performance. implied presented or an by indication conference information assume not materially certain law. obligation results does considered RapidX any this except to of to by the may

press reconciliations non-GAAP to found primarily metrics historical Our be commentary and in GAAP times, may quarterly we in response our terms our remarks prepared or will business in today's of today release. be earnings between insight into incremental can the our your dynamics in offer At non-GAAP results. results and greater questions, to provide or

one-time or that these metrics. in be detail advised not the an be in update may may and additional may we this provide Please nature, future on

With turn the to I'd to Corey like Thomas. our Corey? that, CEO, call over

Corey Thomas

Thank first you, you us earnings everyone. all call. our joining good today on Thank Sunil, quarter for afternoon, and XXXX

environment. current like the I individuals COVID-XX moment for created the has situation spend across uncertainty into dive organizations we would globe. rapidly The a Before on results, the evolving to with and

We are no exception.

our prospects. to of surrounding and adjust customers our remaining employees well-being the while our communities, and of we remain this priorities to needs responsive As evolving health environment, and security the

June health in and closely and model organizations regional to in successfully we and a at this are least mode tracking end, working mid-March. we to monitored ahead. transitioned remote quickly and guidance regulations have remain we We guidance until expect currently as this To plan actively public from

as and seeing much our we can and business. in to share best environment, transparent thoughtful As this are our about uncertain we do navigate we we as will remain what

medical share responders professionals our here to extraordinary Finally, RapidX, who everyone worked care all for have like to these communities the and our times. at and during first to I'd from thanks tirelessly gratitude

to results. QX moving our Now, on

exceeded again our both pleased that and revenue once are guidance We for non-GAAP for we the operating quarter. loss

total strong revenue XX%. of delivered by year-over-year, products revenue of led XX% growth RapidX QX growth

ending on over XX% of ARR the customer by $XXX platform. our driven million was Insight prior for quarter Our up continued year, demand

We QX, purchase solid modest demand quarter. sustained delays to to the IDR in we start late began momentum though from and XXXX exited as had COVID-XX-related in a we see with mid-market impacts

share wallet per year-over-year increase grew increased ARR base to customer customer $XX,XXX, first XX%. we quarter experienced year-over-year of XX% in as Our gains the continued a and

these commitment We uncertainty, multiple this year. an been strong innovation products far longstanding results market-leading have we also pleased with our as on built retention integrated to rates Even so reflect platform. amidst our have

enhanced on customers, We to deliver our of recently via sustained bullish strategic outcomes such acquisition both value as organic DivvyCloud. our long-term innovation our to opportunity additions, and announced and through remain

in market highlight we, team, with market, I uncertain trends of while in would also along resilience strong growth face sheet, revenue and the in the am that I and our stable security to of position us storm. near-term, model to like confident the economic many balance a period RapidX secular our others the subscription weather

saw context me with our we IDR our sustained international are growth engaging Let segments. some influencing is on our views. the current how that Entering how quarter, mid-market momentum share customers now and we in

particularly situation. the a in to more COVID-XX see This momentum decision-making shift the escalating as until of Europe, when impacts positive processes, quarter, in late the customers we in business began acute continued assess

product opportunities a to on number manage best of Our for the focus unique that provides risks COVID-XX-related areas provides and growth. opportunities diversified strategy

product the We areas customer around are and segments. optimizing customer our to needs active aligning and focus most

We representing our ARR. vertical approximately industry continue largest with our broad of diversification to XX% have a

with customer from of comes $X enterprise defined of organizations segmentation, ARR XX% as over today customers, in over terms revenue. billion our In

of our we to mid-market current frames navigate organizations greater this of of When see further XX% for total environment. we mix in our as business high million level This our accounting grows revenue, the customers, as with than approximately ARR. $XXX a defined durability

today. further investor in included We have detail on our deck this

based million less and ARR less of as segmentation, would than XX% our defined XXX our than I employees. exposed revenue note, less on is SMB of to But than segment, with organizations that $XX

Across all to continue segments, security. prioritize digital initiatives accelerate, customers as

start We healthy uncertain pipeline pipe have growth year midstream. of at timing this the organizations as increasingly is but seen the adjust

security of more voiced budgetary as they revised The wider ahead QX is on we while result look are nature Customers which our shortly. a and the range subject outcomes of range in provide to guidance to is prospects constraints them. acknowledging beyond, and Jeff which will reflected around critical shifting their programs have details

increased must customers our our as RapidX At challenges exposure unprecedented Program. the face remote contend to decreased adjust enabling visibility. asset to and new Flex adjust security with organizations quickly time, customers fully is these workforces, same they with

in Flex them home am temporarily the to no to security in offers say to work dynamic. the help leveraging products, their maintain our more that improved pleased asset Insight to charge Flex effectively expand to deliver posture ability manage coverage an effort risk customers across I outcomes. ongoing as are from they security for customers helping the adjust platform

enablement help our reflection to customers. This gap is behalf a achievement of our on security close commitment of the

constraints. customers, amidst acute to constant. keep increasing unique this As we Security escalating with with complexity navigate our resource professionals up the challenged one remains and are thing risk period more

pillars. platform build a need is Our this vision address SecOps leading core RapidX across cloud-based of to platform to our

capabilities. time value to customers this by and the helping remediation and of cost visibility do their lower accelerate We

in a leadership vulnerability We have for some maintained management position time.

only VM for we Moreover, And Magic was full-stack Testing RapidX vision validation Quadrant in RapidX Event of Security Quadrant the was recognized the saw Security in QX, highest Application leader Gartner's vendor Application and vendor Security further Magic is named our rated for Testing. the Dynamic Management. released for as Gartner and a be in to Information recently

through combination investment. a platform of both strategy, further our built are achievements a inorganic organic of These also best-of-breed validation and

acquisition DivvyCloud fits recent Our this squarely into strategy. of

of governance, teams in As team to security meeting cloud, for must risk, with and the vectors, they new security solving innovation while securely. stakeholders' cloud manage the influence to where intersection need accelerates, DevOps, at must sits DevOps them and account the security the teams security compliance, greater DevOps and allowing threat DivvyCloud are emerging process. grapple bring further accelerate the the to

acquisition of the our to The secure of by helping them cloud DivvyCloud RapidX's ability of Insight elements programs assets. capabilities address extend cloud the cloud security will customers' foundational their platform, accelerating

will cloud and fragmented combination the and to positioned DivvyCloud, application of the of InsightAppSec, RapidX offer tCell, be security a With in space. leading solutions set

we let's perspective and look delivering turn customer as some on ahead. on in remains Now updated to our goals. focused optimizing XXXX sustained business driving our leverage growth, RapidX economics top-line

like the of context that business to goals XXXX priorities I to within would backdrop, take our reframe moment today. With our a

first a focus tied needs more is to workforce. our to customer Our re-orient around the and cloud goal distributed

cloud. the a and near-term the both and that shift clear long-term is more broader accelerated to support trends It

sustained Our opportunity in we deliver be ability of key driver to address customers' area top-line growth will this forward. look needs our as a to

platform Our drive customer distribution in and will us platform partner second enable economics leveraging by to technology This goal our time. unique engine over advantage. our improving best-of-breed is to accelerate momentum

minimize expense loss Our third strong deliver business. cash optimize goal ROI through and around for the controls in demand free that leverage rationalize environment the near-term high is sustained to investments, flow organic

that top expense we the of this quarter. income year guidance quarter of anticipates to fourth absorbing in the our profitability and in profitable DivvyCloud the to additional mind will commitment remains after return Our growth of third operating

deliver I free will for note early flow cash positive remains year it for cycle to that while we XXXX. Additionally, in year, expect our full currently planning next

into conclusion, is cybersecurity they remain resource-constrained accelerate help in In adjusting and current RapidX organizations solve we environment will well-positioned challenges customers' facing needs to to the the as cloud. the our

Jeff over With to call our me Kalowski. the CFO, that, let Jeff? turn

Jeff Kalowski

Thanks, Corey, everyone. and good afternoon,

and exceeding amidst performance to pleased landscape. quarter with results our of are XXXX We economic shifting revenue the a guidance for report healthy first profit

revenue, between in a results earnings measures, all press stated. can unless be GAAP results Except today's begin, otherwise financial our discuss found Before few I non-GAAP for Reconciliations release. we'll are reminders. and today financial non-GAAP

together way more our will reporting Also, call, and a believe last going business. revenue this to under at revenue, maintenance products products look in our as and we is support forward, we useful we be as discussed

million, ARR to XX% total year first at of growth over Turning XXXX the results, of ended year. quarter $XXX.X

First $XX.X high year. the revenue of the prior over guidance, exceeded growing end of quarter million, total XX%

a by growth Recurring revenue trends This constituted which of quarter. revenue, XX% ago. from renewal in to compared driven strength revenue solid was the year-over-year strong of benefited products total year XX% XX%,

XX% increased sequentially. flat year customer year count X,XXX Our over and of approximately was over quarter-end

This sequential and to to legacy offset customer deals, platform XX% by the per late by ARR Metasploit XXX which of in growth approximately churn Nexpose end-of-life up increased additions of is year-over-year. due quarter sequentially, in COVID-XX. and result slower customer customer grew continued pace by base, NetFort customers over new impacts fewer driven our transactional healthy a $XX,XXX,

of growth revenue America representing geographically, year-over-year, XX% business saw strong North revenue. the year-over-year, first representing XX% Rest-of-world approximately at of grew total Looking revenue. approximately quarter XX% of by total continued XX%

quarter, the for impact one-time margins, expense of spoke to QX, front-loading global our recall year-over-year Turning we such which first certain last lines kickoff for comparisons about as certain will expenses quarter. event, in

Total continued as well platform non-GAAP year, last services was in gross products. quarter, year margin margin Insight prior versus period, mix in the down by the of professional lower from our XX% XX% driven as the increase

Sales result range one-time XXXX, a our QX as and and of headcount XX% expenses. to to up allocation XXXX, in marketing slightly allocation expected XXXX, and in compared QX XX% revenue XX% to within also compared expenses were XX% revenue, expenses. previously R&D costs were of mentioned of expenses one-time due increased of up in of QX

period. revenue, XX% timing year consistent driven expenses of our T&E million savings, loss and reported G&A in better revenue, with on a We first marketing the than non-GAAP quarter, first the of program the by prior in range, guidance $X.X overachievement operating were spend. of quarter

million We and $X.XX, a $X.X quarter of $XXX.X first share of million. Adjusted of per ended was the QX cash, EBITDA ahead investments cash net was guidance. and with for loss loss non-GAAP also equivalents

for million last DivvyCloud closing $XXX acquisition which reflect the week. approximately of our approximately before we and offering convertible notes not of does is net This completed related paid proceeds to $XXX million call, at cap

months, the QX Operating flow for and the in million. quarter. an over quarter for convertible only, cash cash Taking was was $XXX DivvyCloud levels line XX current into exceed last year million, million with in Average acquisition improvement contract the the our negative XXXX prior period. $X.X of length negative offering consideration $XX.X

the note turning acquisition guidance the guidance. of full for to XXXX. and revised Now quarter Please DivvyCloud our impact the year includes second that

COVID-XX-related and we have industry and last past at over time to speaking micro-vertical months, shared understand with week, we our the level. spent business customers As to considerable working impacts the

we constructing segments and that In revised and we both are our at guidance, sub-industry across financial looking top-down performed spend durability bottom-up to. have exposed stress analyses

data well third-party contemplated to that churn L-shaped to estimates scenarios. best both sub-industry. and businesses various leveraged recovery, as as risk analysis new recovery a economic frame of across relates U-shaped base our and account V-shaped by and it impact Our COVID-XX-related internal scenarios This includes our and customer for as both the

assumptions range new and U-shaped economy; revised or our guidance that, highest assumes a and QX and to the a baseline there across reflects The two, these a growth, of with XX over midpoint one, best recovery is are shocks the recurrent economic scenarios the third, to road global long no will steady negative see economic impact period. month it XX to recovery at

based are recession today, sustained balance through the moderate, but experiencing are the which are what approaching we assumptions as These on year. of we a

what it updated guidance at of be with in set We remains drivers, do which it the control We reopens. long how this economy framework the on and when April XX mind. recovers our will closed not pace primary

the a of and For now loss or XX% XX% non-GAAP and guidance in loss to for million from $XXX $X ARR million million range XX% ARR anticipate we the loss and of to now our XX% range the of growth We million, in be be to full of of year full-year of $XXX XXXX lowered to anticipate in the widened to to range to revenue the $XXX $XXX operations growth. XXXX, a $X million. million range

non-GAAP loss will we and value per loss This share record in XXXX. per share. a anticipates revenue, in a of to the to of acquisition impact be to $X.XX reduce range share note fair revenue We to per of of the anticipate required net DivvyCloud's of the deferred DivvyCloud recognized be that which adjustment loss a will $X.XX

the full approximately average This of shares loss weighted We XXXX, is for for $XX year based year outstanding on now million. full from projected operations flow the loss. given be XX cash to XXXX basic expect our non-GAAP of million net a

associated flow ARR billings contemplates year, the reduced million cash current higher assumed in economic lower to slightly our with expectation prior base reduction This business the DivvyCloud estimates for the to environment. due of billings relative $XX positive of our absorption and outstanding

despite particularly guidance the quarter rate that Our visibility fourth in full to-date. and trends solid lower our renewal anticipates anticipates low year trends is

a positive will we As Corey business full major U-shaped reiterate, on we we look and flow ahead, shared us year I expect of with expansion recovery, sustained cash our a XXXX. earlier, the leverage and focus that currently as facilities the driving behind in free assuming for deliver can

for now in $XX.X XX, be quarterly XX%. XX% million, on guidance, Moving quarter of the to to to $XX.X as reported million we second XXXX April range of we anticipate the to total revenue growth of

projected to given of operating our million of an shares non-GAAP $X loss be net in million second on weighted range based for non-GAAP to of anticipate non-GAAP income the basic quarter, the the the per second anticipated breakeven in income outstanding, to a net share We million $X average $X.XX quarter is XX.X for to which range loss. be and

our through remains and positive RapidX focused security execution, times. these deliver on innovation help prospects while continuing to and outcomes customers conclusion, uncertain In

we appreciate your the And we'll now Operator? that, call questions. open support. for With and any time

Operator

comes Our from with [Operator proceed. instructions] first you James. Michael Sir, question Turits may Raymond

Michael Turits

Hey, guys. Good evening.

customer, it's ARR sector do to impacts, and Corey and us biggest whether to ARR perhaps factors Jeff, first, sector smallest reduction. So, anything in - particular, parse churn, in per you can you in And reduction behind retention the the revenue the a can factors. particular the for parse major

why leading so of maybe show than a revenue. ARR And indicator, is is – us much reduction, which the tell us steeper more

Corey Thomas

are Absolutely, you Yes. right.

a and you First, right. It Michael, indicator. – are leading is diving deep

were fairly to strong. thing I'd our results reiterate first QX highlight the So, in the results, is

I the quarter and was as Jeff at quarter. start of that upper-end very the strong think to both some impact we you remember, had of saw is indicated in COVID-XX the XX% which a had retention XX% range, we I and limited the to late and

very is in to very solid overall The off second our April that, say year. thing I'll a It’s still start. is the also early

reduction to factors. to of with is your and core sort driven a factors, couple why it's get by Now, in of those question ARR the

the if impacted that, and is economy you think QX. sort both in QX severely the first environment, we is of like anticipate The about macro

out occurs And spending typically so, slowdown overall the see and a regions both you in the macroeconomic is of even the if about just you impacted when just impacted uncertainty environment. take industries, that there

And visibility. so, what more we like of is sort find more both you that QX impact and and of sort we anticipate intact in QX

sort figure are ones timeline on. that healthy, picking by base, even the QX things to the affects trying overall therefore, every way, people So, going environment, and are out the up aspect in our because that the of of what's customer

And from they're buying overall. by even I how the bought trying have we healthy trepidation, customers figure it to because and buying that, say, would impacts with way are, our anxiety and they hear business some out that are – their

verticals, instead looked The would does second not team looked and you large looked through in providers that hospitals different of healthcare, than are where detailed, thing Jeff's the different healthcare hospitals is, size smaller but economy that that of verticals went and they ecosystem. at segments that the we than say, than all both and at the micro-vertical actually of distributors factored actually analysis micro-segment at by a in very you different looking just and micro at I you

adjustments we where spend players along impacted that impacted compare at we to we expectations likely where think on our looked and to We And the our year. pipe were some to the to happen in that. based likely that not be and made was

to strength not decision that again, just retention, the strong base, would rest comes you fairly in started is, the our I reflect us see think we We from renewal intentions about when all the the the or when rates to expected we've did strong. the responsible that the or feel like our it way thing throughout other seen It year renewal that The for of year. overall say right off customers.

So to we – do based in to the just increase seems as through. thing that was on put reasonable like churn happening. it macro did a economy the of And the that factor was wash expecting total environment a

The strength a we when workforce areas because that, a in and in say strength actually specifically, monitoring think complex business, overall. cloud areas I'd were you environment factored about is see just overall about that of security think last actually application we there in you more the do core distributed thing when

that Those driver. that in the strength primary that reflected and model. are saw we we our But areas in was

Sorry. That make was want all. covered sure a to I long-winded answer, Michael, but I

Jeff Kalowski

Michael. Yes, I'll just add...

Michael Turits

Jeff. Hey

Jeff Kalowski

Two points on your question the on revenue.

the $XX If compare at on midpoint million a our were we year, Divvy the where guidance was it the the beginning about of excluding ARR versus drop. acquisition, you

the The drop course because of have revenue model, it take ratable reason that does of year. later significantly as in not and one the over is will because we the come to

why So you're bigger that's seeing than ARR drop revenue. in a

Michael Turits

sorry. then, And I'm

your in – be impacted did Just I consider the missed case it, within travel, to you by protocols to cetera? what et exposure people COVID, quantify might

Jeff Kalowski

did Yes. We analysis We've sub-verticals and all that financial pipeline. verticals the an stress. at of our looked under were

our guidance. And base our that's and so, into looked our we at baked been as renewal well as pipeline, all

Michael Turits

Could with Right. us? share you

Corey Thomas

that, roughly approximation the especially Right. when - Yes. highly impact the think roughly is And and XX%. look areas that hospitality, I retail, you transportation at, at of of impacted – rough

Michael Turits

exposure? XX%

Corey Thomas

happen those feel– environment. in the Right. again, but mean, Yes, highly we deals and exposure. areas, exposed activity of will and I be that the Yes, exposure. see still of you'll both highly, these

Michael Turits

Great. Thanks, guys.

Corey Thomas

Michael. much, very you Thank

Operator

And RBC Capital. from Hedberg our next question with Matt comes

Matt Hedberg

for now. for color a for Corey, Thanks, Insight sequential I was Thanks curious customer XXX all, yes. of Hey, That thanks my adds. questions. my Thanks the guys. guys. first helpful taking disclosure. am the taking on –

April to start. is noted strong You a off

making a little insight better? more. you just work from am maybe I once could Is little customers were could give wonder that on dig purchases? if more you if sort a comfortable comfortable trending April into setting, it they of that I got bit home is curious why a in just

Corey Thomas

the I well, still very characterize We a I'd quarter. Well, It's solid start. early as think in good. it feel

think good don't should like far that, right we I want are My because ahead. of to more feel that's now. toward about of transparency get actually felt April we bit little too happening, is, now happening we couple But a for you see and different observation I what's So things everything a we disclose biased happening.

priority. a is security foremost, and First

those they are One that is I other find the areas likely increasing I of because when overall. education out look hospital you security things on interesting are or they is interesting And areas, to go to means I people, and to I are reliance churn security. higher, that these at existing of when find what technology, in impacted that which less investments talk are prioritizing their

some at are the Again, so severe to you duress, has you assume to like seems have be have other But choice, got I that think the prioritizing some businesses when banks, to factor level. existing business they have the bankruptcy, under it that investments.

security, ones The seeing projects significant slowdown actually to enough customers, that. second I not What thing are move that related am those to comes the that, we The where associated seeing am seeing for security. staffing oddly they and around it's are ones funded forward we that, both are the talking with seeing large, there. have when I where am projects is as that, more is it even to and I by staffing have

and both as having our a spend as well go our platform team. it's on to technology, having to hire So money

and adding the are that's companies pressure of a where think, trying they rationalize bit in how slowdown. to you I there the little much and priority are see headcount the

Matt Hedberg

how you follow-up, organic if, That's are And market quickly growing? is ARR that the the fact, in be guide, helpful. helpful. curious VM is basis remind I a would if think growth, to you you the mid-teens. an close can your And then, regarding on maybe am midpoint I us just outpacing think as

Corey Thomas

market run continue so in well. comment, Yes. this far. QX, we and a reviewed on and in based just take data we I'll to the overall we've That one, the is think make share I

durable we we see a VM driver as that forward. as is go thing still growth second The

less. this environment, is think for I things in all most Now, growth pandemic

like so, - looked do that get And this environment, the as the some the expectation is will of VM we XX% that we mid-teens down comes believe environment to if current to at point, that X% at of in sort before, growth out range. we our again,

would we that I growing think in are taking faster we environment, that we market, and have apples-to-apples still than say, overall benefit the basis. still also, vulnerability the on management are share an we and

benefit The that we high this actually have do force other think that that in because current ability in sales environment, we to make efficient to that's our an to net And is, areas benefit navigate we do our are a have environment. ability demand. the

Matt Hedberg

Super helpful. Thanks guys.

Corey Thomas

Thank you much. very

Operator

our Saket Kalia next with Barclays. from And comes question

may proceed. You

Saket Kalia

questions Okay. are my Great. here. Thanks taking guys. Hey, How you? for

Corey Thomas

Doing s much. well. Thanks

Saket Kalia

Corey, base maybe guess, mean how sort you there this that what Can standalone dig as right sort you. part is, I I now, And, NetFort just count first end-of-life InsightIDR? of a by customer into the did are much bit the of little quarter? as handling Hey, impact you both as how for of a that just base, importantly customer

the somewhat how this sort to value base, for will? if Does enhance InsightIDR going make strategically, And your of is that sense? you

Corey Thomas

move leader And the year. enterprise say was allowed the And we to in Quadrant actually in detection you've the and I over we would the what is acquired Gartner that, Magic actually foremost, moved a into a earlier first to which seen roughly more that provide NetFort – market. got Absolutely. people a ago, that network little I'll remind that us to Yes. visibility, year core capability

and are IDR where that natively solid see data IDR world We you endpoint collect no the the collection area to are demand an of in are few environment, out matter that first mechanism one of box solutions great especially visibility. people data, in the this providing even staffed that's get because, our in we demand, allows

network have We data collection. the

do more teams the of is that most a and environment in data this and is to actually, overall with level what you into us the into the feed higher technology get importantly, one, forensics especially case, feeds allows enterprise as And more for network detection important additional our So this it our our NetFort into a have space. customers. move capability

I'll launched say, just it. we Yes, now

been customers it. interest the good. continue far, the demand are great The seeing expand our where part SIEM of category teams to additional from grow were and it's the actually sell to So has very very that our and optimistic a beta key in strategy seen we're there. about starting customers But it we've to

as of customers, was As it expected far the impact anyway.

I our say would an a had, extension expected Insight journey and we again, So was not be just It them was starting are actually where base it NetFort, impact. on. acquired we customer the actually to they modest the acquired because, for core that platform all that's we of

Saket Kalia

puts that Got Maybe it. revenue That for on makes net sort Jeff, a feels my got takes. retention, lot follow-up of sense. of and for you, it like you've a of couple

terms of rest a non-SMB the we churn the from we but number the increased also about talked larger coming of sort year. maybe an assumption I of through ARR prudent XX% that's of base, in about talked of then the think sort

retention of in qualitatively about course, thinking the the net how kind that of are of is And there quarters? just And trend cross-sell you revenue could that Can you upsell. about number? sort variable talk other coming in how

Jeff Kalowski

Yes.

XXX%. had quarter. in this So little QX, our was it from non-platform We a headwind customers

If than the platform our you XXX%. it customers, was look at higher

based and upsell from of base. expect – portion the go in churn that the We less less renewals down rates on estimates, in cross-sell and higher our to it lower

the course year. the down We over expect go to of it

Saket Kalia

helpful. Very guys. Thanks, it. Got

Jeff Kalowski

you. Thank

Operator

Owens from Piper comes with question next Sandler. our And Rob

may You proceed.

Rob Owens

my in at this be hands-on strength time, might us two, to it there? environment? just understand typical point like? number seeing I cycle this talk guys. be? shifted taking you Thanks. for Good what Thanks How Corey, there? afternoon, And in And And what a guess, it are you a as Great. could InsightIDR, why this priorities Number looks the question. little about bit help is has a highlighted implementation one. have

Corey Thomas

Yes. Thank great a question. you, It's Rob.

factors. more So, people the strength, is on centered InsightIDR seeing two that in think as really, on rely One, think, I we're I technology.

doing is COVID you strategy were in think ways about many you a that's contemplating accelerating. what digital is, if If

to in you security know you a world aren't account. hackers actually into where furloughed, have And take

And my so environment is, I am for InsightIDR, for protecting I technology make what sure how that in people are a, looking higher typically market? do a

distributed Now from which, part we in a all this that people need position integrate data got of now competitive think the to of are the world, more native InsightIDR. is reason of over capability that InsightIDR environment acutely the from sensitive that a that's to favorable endpoints

what the it Rob, based foremost think, few first would on the SIEMs to say, But for I response complexity one cloud-based we're is, size category. thing, second detection environment. like varies technology your does like, the question I in and typical what the and and look, leading of looks of about The skill the deployment

that huge, In have lot time what the infrastructure, go it means doing having advantage. less a people a is up core the in huge is can't and office, getting this where that, running. to spend And a cloud-based SIEM environment people

the of are sophisticated give And a sort time environment. value so as And that from to that communicates like momentum it's we has productivity out a my we that's platform the native and fact box to optimistic built it and the perspective, cloud, into actually core highly see the all for of overall. a directly the fact actually agents SIEM, that cloud-based the

– opportunity thing to little see of do XX% bit above last is is expectations area rate the this throughout is, at hyper-growth say more an a we the forward as that this timeframe, year. to think The continue that transparent that rest the go grow in seeing I'd about that the we are we

Rob Owens

your a down start Great. then remarks, as that program? And of you being to they customers your expand a mentioned many prepared it in but does that? could advantage look that took little as the on second, those monitored? lend How of road backlog actually And you Flex monetizing incremental assets bit kind you might are

Corey Thomas

the me of customer Yes. great having That we customers account frankly, applying front uptake. that sure don't a and It's primary customer It's of it program the there just overall. too not good did to a we the are the now. needed. just program our make the I actually early discussion, question. focus right we for we are was But were And Rob, actually when for it. in have

goodwill I RapidX actually this process, hearing are generated us the give make our preference What actually and from is is does feedback actually customers, some increasing. is their customers that we say optimism would the for that through that that as

the so operation. in And hope the that's

customers. We seeing from of our in place. that put are programs we that some primary the definitely actually not But these that's reason

Rob Owens

you. Thank right. All

Corey Thomas

Thank you very much.

Operator

And Gur our comes Stifel. with question Talpaz next from

proceed. may You

Gur Talpaz

clearly investing first, Thanks especially in conversations great. with you AppSec. I questions. taking DivvyCloud. here of your what It's wanted for to you're Corey, in, Okay, are terms ask, my seeing around something

pretty remarks, think I a customers touched It in but be workloads area. you like this the importantly, seems more on this prepared important as cloud. And would migrating more the are to

these could you if there maybe seeing days? are out some So, give you us on what color

Corey Thomas

just to want Specifically, cloud, the Gur? right? I I got question to sure, the make

Gur Talpaz

To cloud as a broader AppSec.

Corey Thomas

in AppSec general? Yes. Okay.

So it's interesting.

optimistic. say, over is would and the part not time, I very one, we this are So just look, – of reason

strategy around from action-based perspective increasing. technology is, cybersecurity core a their a their is high because get in of belief management and handle automation to the desire the analytics We visibility a have scale people’s actually and

acute going now, think that that, for And is every the and that function. and right say way, to independent are almost in to would by increase. is I are continue this in we right now we of What the the period period that – I is

do And to the Where everyone I too, need a technology I actually need environment is, people so get in understanding security, to their of the what's in in are trying question most say, general. I must better essential? expand would asking do I what general, But coverage? where to focus? expand do right And And is now? my

the people managing that this areas are see about we manage to environment. period are cloud-based aware assets what acutely on more distributed have really more? And as like what people risk now, assets a in is I are right time focused in core of But, the and that

Yes.

the they change I But general for the for would a and are to things will their assets the and think exposures the on on generally where to people represent pace environment that them. and the business about in think will that on and most I more the highly, that highly overall right risk that risk the focused they basis. now, understanding expand the visibility that steady and try back their are go to

Gur Talpaz

the That's the you. prepared then, from? being through with of can notion one comes and free that for helpful. positive walk cash where in And you Maybe inputs the on Jeff, for outlook this maybe remarks, Corey us in flow touched XXXX. threshold confidence the of sort initial

Jeff Kalowski

Yes.

our I in XXXX any want revenue of revenue First that light expenses give conditions. to and have expense Well, can specific changing targets. ARR controls off, don't strong on guidance we say I'll manage we

rates toward if ARR think, implied you quarter, at – off look you an that. of could as of how in that lever growth we at I would at look idea fourth the our look

ARR And on really it rates QX be But this U-shaped be as be looking would it's growth on also to come saying you revenue rates XXXX. based it. the would early I'll give rates the and would recession still at specifics by that the exit and of out a any what growth for too preface we

Gur Talpaz

you. Thank helpful. That’s

Jeff Kalowski

you. Thank

Operator

Essex our question next from Brian Sachs. comes with And Goldman

You may proceed.

Brian Essex

Hi. we and taking Good guess, you maybe afternoon bit. a the question. you start little with Jeff, for can I thank

we As of for of look and in half few as I QX, last we XQ for back performance kind progressed implies the the seems terms at where look the the guidance it and to far of of When you've need where that profitability. breakeven kind guiding you quarters in get where so though are at year. of

levers course – make profitability? getting have still how might for What in Just of kind I spending maintaining the spending do you you growth growth. think an trying for guess, understanding balance how in better you do that those a profitability? versus it this while focus of environment, few to you on changes about over of macro quarters? And get do

Jeff Kalowski

Right.

in We quarter. correct are the that. are You still to fourth profit - show a we going in

to QX. are of half with you a the year about right this in profit the second layering So,

quarter are We We've like nominally. our spending, each adjusted T&E. discretionary expenses increasing

in ARR ROI making our need areas reductions. with the we expenses hiring We still and critical we've and investments in adjusted where revenue high overall are to line But hire people.

Corey Thomas

one, only you it, to at the think is if view. we the that, I we how to long-term take I tend And thing actually manage to would mid add look Yes.

as exit year think, in I Jeff is the note. said that, we so, are And a to going positive

keep expenses, us just in would but I that, does has a is around have is, thing mind is high we curtailed Divvy, and second demand into which third for put strategic the The quarter. as loss we see it,

going environment. And the that this to so deal you with so quarter, just back that

turn like quarter, around the positive. Next In addressing Divvy. of into are fourth quarter, we things sort

that's a think gives track a also and reasonable profitability into we cash as both I free that record model us confidence go year, and next flow.

Brian Essex

is follow-up, Got has just XX a over for productivity obviously, spent marketing, or on Jeff sales the past spend guess, so. it. in sales force productive? I What like? helpful. that months super fully this have What Corey is maybe That's is, the and you become position to sales is or accelerated either And

more the you perhaps adds? And of though how we year, think seems in within about focused there you as on customers? kind expansion do choppy are logo that as it more of last spend keeping walk kind through This mind environment, year,

Corey Thomas

Yes.

sustainable so, focused we really mean is the actually the how high-level and that what be it probably than exit the go on actually more approaching comments in it we're into sales have QX. and as expect approach think has we QX anything that that, I which is I really that we to productivity else, the by the just we is of as are is, productivity view

exit uncertainty we into make based on But year, based we this Jeff when about that actually good are determination we talks not massive place, expenses rate next that match we that of in now. have with incoming year actually and the like we really the controls going ensure the the will to as - actually sort the go of expense on ARR. the So

is the for reason more that to have expected. be something we we've that, would positive And again, than had

made we So it would knee-jerk have over-response. an been a have reaction,

we So what both and near-term, in year that exit as are we model our and enter the most and calculative both thoughtful optimizing being we really next the for very next around rate implies year. and importantly, are

Brian Essex

you. Thank Got it. Very helpful.

Corey Thomas

Thank you.

Operator

question And from comes Sarah Hindlian next Macquarie. our with

proceed. may You

Calvin Patel

questions. afternoon. our taking Calvin for on Good everyone. Hi, This Sarah. is Thank for you

Corey Thomas

Sure.

Calvin Patel

areas could little you if a back bit open return seasonality upshift, would the to of comment into to you up back see we as office? I start and as was and wondering on the employees potential kind that what start

Corey Thomas

is, our XX to model don't mean, recovery probably – the why am I going I have open the sort timeframe. I they knowledge is look, has in. quarter like as U-shaped - this to up that to it just XX comment, of to Is And because that we are come immediately QX? there, any not so one be don't the like know of month that, that's Yes, thing going move special going in sometime actually is to people sort we

don't model, know. QX a at say, like to again, the a That’s at pick start out we the of something that we up why in would and a macroeconomic QX. and the look of sort is question. range, just wider at sometimes midpoint, midpoint health you end back much then I that if like But more our sort bottoming that's we do the give of a of assume but

of expenses the macroeconomics sort the we match the we the and where don't actually through year we're or we we what exit and the ARR actually the how of an so, and at gave control the either the looking that that's And manage we do like actually do right is at how do did. health why next environment for well, ranges instead year and way we how

Calvin Patel

Okay. Thank you. that. for Thank you

of the into the large that shift beyond getting per just it larger term I K really of XX your driver, a we close kind Or you the $XX largest to to kind think see going a that's portfolio this is XX customer enterprise? the range? of was part strategically, there that? Is As into really as thinking drive follow-up, what of were you kind customer do and longer-term, and do - going from wondering

Corey Thomas

It's a good question.

it am at I two in going lenses. to So different look

a at The and if lens. are cloud, just back step the transformation technology-dependent in we mostly, digital it first a is, accelerating are you we macro becoming in both more world. take One, but

context. the that's first So

in a world more technology-dependent where we security is world a becoming context a that is The second priority. are

second third long-term leading, in And is security thing a about operations the we think successfully have platform And a best-of-breed us for the what managing end-to-end. good puts dynamic. that's thing. built So I that as that

not of products. platforms category many leading just where one of you find mediocre don't a bunch have You sort products in and

across leading have products categories. multiple We

sales that and world. to trends that category players long-term plus post-COVID trends team about of that actually still every – in team, our that outside future in the participate one the the actually other macro holds the One the you this thing talk combination, and has top to our of excited is if top be we what folks,

Calvin Patel

Thank so much. Perfect. you

Corey Thomas

you. Thank

Operator

Jonathan Ho question next proceed our Please with comes sir. William Blair. from And

John Weidemoyer

This for is Jonathan. question. John Thanks taking Weidemoyer a for Hi.

and headcount expansion, and You pre-COVID pace? perspective I such. of the from international environment do perspective talked it world, be from controlling about the will same product to introductions and that anticipate this at costs comparing of am the the wondering COVID you new essentially

be to like that. characterize think those Or two do – had next what doing to or environment you been several more, prior to if how you elements months that you year extended that COVID the would to be compare would a were an up

international augmenting obviously, probably and general, expansion was world? I pre-COVID product DivvyCloud had COVID been in suite. occurring. of talk you an your But, development about or your pipeline Could new COVID probably element in as that is product mean a in

Corey Thomas

Yes.

I'd unannounced course, committed the first specific kinds and or foremost, are changed. the we new of technologies. actually pillars won't into, pillars like, that say we hasn't into to. go still Of have I That that, actually Well, that

about strategy, hasn't think you product If changed. our that core

the world that is have that, you thing second I'd The make when adjustments. point look, to actually out changes,

are you you to the that getting to have to the be actually have under adjustments market. but You you respond have and feedback then quickly thoughtful, in to uncertainty make

investments and core is we focus are you environments a our we a of so I ways the – see way that, don't in impacts of products. certain perspective in where manage distributed prioritizing if our it, dollars investments there technology spend sort our it emphasis think people from a will our is – certain I level, think in about we specific that where is, Because higher that put reallocating are helping at of complex a all and

the challenge managing people also and to move challenge are on efficiency. new operational It's and simplifying and But customers. augment to focused it's new all having actually the to deliver cloud, because focused our helping that cloud people their are services customers for accelerate how platform on of and faster our products our and that improve

that that were and think quickly are that those things sort provide customers. sets we of on long-term areas, hopper the like actually before, act up were are the And are and these the areas because those of then if decisively in to All but emphasis specific we most we value our to best the putting customers, meaningful dynamic. our

John Weidemoyer

of And has because Okay. That's in into such, by that and the current the into off been prospects further the IoT very helpful. – pushed similarly, background customers, Could you. Thank environment? of area - nascent OT, arena. and a still that's

involved Or IoT of a that create that being little forward medium-term the of move opportunity as current could there more that result more were and/or could and an kind a remote, are such in environment? and the the of remote with elements

Corey Thomas

deliver time in is said would it say for point I some customers and not the IoT/OT. urgent we right I us, on now. will that focus So, at an priority for

complex a about about survey priority urgent distributed you it – off the do right of It's or if focused there of their that and cloud. on are is is talk not – any areas If not you managing they look customers now. think you lots like to that how to accelerate customers, around workforce

mean are items to focused point, their it it's right critical that just we pressing at and strategic and not are won't this they does now It existing initiatives. do

John Weidemoyer

very call. the you. Thank you for Thank much Excellent.

Operator

CEO. concludes to now over like Ladies and portion conference. the gentlemen, Q&A this of call turn today's I Thomas, back our to would Corey

Corey Thomas

you, you all all health I and Thank this so Thank safety wish during time. you much. again. And

Operator

day. gentlemen, this have now great you for call. you participating and today’s Thank and concludes may conference a disconnect. Everyone Ladies

Rapid7 (RPD) 9 May 202020 Q1 Earnings call transcript